Weblog of Joe Ross, Trading Educator and Trader for over 5 Decades

If you had the opportunity to learn a simple technique that offers you all of the following, wouldn’t you want to grab it? This technique:

• Tells you where to place your stop loss in any market or time frame.
• Tells you where to set your objectives, so that you are paid to trade.
• Tells you which market to be in today, to make the most money.
• Tells you which time frame to be in, today.
• Tells you how many contracts to trade in accordance with your risk tolerance.

Can you imagine, no more guessing at where to place your stop loss! Wouldn’t you want to know which markets and time frames to trade every single day? Wouldn’t it be great to no longer be stuck in one market and one time frame? How could anyone really believe that they should trade the same time frame in the same market each and every day? You want to go where the money is, but it can be in a different place tomorrow than where it was today!

How to be a successful trader is one of the best kept secrets in the world. The insiders don’t want you to know how to do it. Yet trading can be one of the most profitable ways to make money ever conceived.

To let you in on the secrets of successful trading you are provided with a live seminar! You can get an inside look at the reality of trading from a 52-year professional who trades and earns his money in the markets. As one trader said:

“I guess I’ve seen and read almost everything on trading published over the years. I’ve never seen anything as complete and as unique. Joe’s methods will completely change the way most traders view the markets. His seminar makes trading a whole new ball game.”

You need to know what the successful traders know, so at the seminar you will learn the following:

• The way the markets really work and how you can take advantage of that knowledge.
• Why markets exist and how you can take advantage of them to substantially lower your risk.
• How to know where prices will move next and how to avoid being trampled by the insiders when it happens.
• How to get more leverage on your money than you might think.
• How you can trade always knowing where to put your stops in the market.
• How to considerably reduce your margin requirements for each trade you make, and in some cases eliminate them entirely.
• How you to be paid to trade before the insiders run your stop.
• What to do to make a pile of money when a market forms the right setups.
• How to use the Law of Charts™ and the Traders Trick™ the ways the pros do.
• Five different setups that let you locate winning trades.

Learning the rationale of price movement will put you far ahead of most traders. You can find out how to trade in a way most traders never even hear about before they lose all their money and disappear into the night. You can position yourself at much lower risk than traders who trade using only standard techniques.

You’ll see that prices these days swing, not trend, and you’ll find out how to take advantage of the momentum that initiates those swings.

The setups you will learn enable you to trade in markets at the exact time they have the best liquidity. Beautiful setups can be found in all markets: grains, softs, energies, metals, financials, currencies (forex and futures), stocks and stock indices. They are even available in Single Stock Futures and Contracts for Difference. The setups can be day, swing, or position traded. There are traders who use them for option trades as well.

You will have proven to you that the odds of winning on the trade setups taught at the seminar are greater than those for the way most people have been taught to trade. You will discover how you can win with trades even as markets move sideways and other traders are being unmercifully whipsawed.

To learn how to really trade successfully is why you should take a seminar. You will learn everything mentioned above and more.

Click to learn more about Joe Ross’ Trading Seminar coming to Dallas, Texas on March 20-21, 2010

Question from a subscriber:
“Once I’ve achieved success as a trader, then what? I’ve heard that after awhile trading can become boring.”

I know you would all like to have that problem, but I can vouch for its being true. I am always having to find new ways to trade or I do become bored. However, I have never run out of ways to trade that remain exciting, at least for a fairly long time.

After the objective techniques of trading (discipline, controlling losses, self-control, self-confidence, etc.) are mastered, the great traders have prescient insight and the ability to envision themselves and their methods as part of a higher realm where art, science, and markets become one with all life.

My friend Kent Calhoun says it this way: “The great traders I’ve known have an enthusiasm for life. The word ‘enthusiasm’ comes from the Greek word ‘Enthios’ and means, ‘God within.’ Enthusiasm is contagious and causes men to rise above their abilities. Napoleon was known as the ‘100,000 man,’ because on the battlefield his enthusiasm was worth another 100,000 men. Henry V was a brilliant ‘100,000 man’ who lead his troops, outnumbered more than five to one, to startling victory at Agincourt, where over fifty Frenchmen died for every one Englishman. Great traders, scientists and artists recognize there is great art in all scientific endeavors, and there is great science in all artistic endeavors. Living one’s life is the ultimate artistic statement.”

Of course, you can always turn to helping others. There is a lot to be said for giving back some of what you have received in the way of good fortune. There is great reward and satisfaction in seeing another person make it as a successful trader.

One week ago I received a couple of emails questioning whether or not I believe in support and resistance. In fact, one subscriber said if I didn’t believe in support and resistance, then I couldn’t possibly believe in trend! Why? Because in all cases the situation ends.

Here’s what I believe: The trend is your friend until the end. The swing is the thing until it goes “ding.”

What is support and what is resistance? Are those not simply convenient terms to describe an area of fair value? Prices bounce off of those areas of so-called support and they bounce off of areas of so-called resistance. Why? Because temporarily no one is willing to sell for less than “support” and no one is willing to pay more than “resistance.” “Support” and “resistance” are equally as mythological as “trend.” Why do I say that?

Every market is in a trading range between the highest price it ever achieved (resistance) and the lowest price it ever reached (support). So what is all that stuff in-between? Can we call the junk in between “support” and “resistance?” What are trends and swings? Are they not simply connectors connecting the temporary areas of fair value? So-called support areas fail to support, are broken, and are connected to a lower fair value area by a swing or trend. So-called resistance areas fail to resist, are broken, and are connected to a higher fair value area by a swing or trend.

Trend lines and swing lines are also broken, and lead to areas of fair value, where prices chop sideways for awhile. So, what’s the bottom line of all this clap-trap about support, resistance, swings, and trends?

As far as I’m concerned, the only thing that counts is whether or not you have found a way to make money from any of this. If you are able to make money when prices bounce off of so-called support and resistance, then congratulations, you have probably made it as a trader. If you have found a way to make money from trends or swings, or have found a way to make money from broken trend or swing lines, then you deserve praise and are well on your way, or have already succeeded as a trader. The rest is just a mincing of words — semantics. Support, resistance, trend, swing — all are nothing more than ways to identify what prices appear to be doing. Any one of them can see the beginning of the end with the next price bar. If you tell me prices are at support, I will probably know what you mean. That is all the word “support” is good for! If you tell me prices are at “resistance,” I will probably know what you mean.

Do I believe in support, resistance, trends, and swings? The answer is no! I do not believe in any of it. What I do believe, most of the time, are the numbers on the statement of my trading account. If they are getting bigger, then I am winning, unless, of course, the broker’s back-office has made an accounting error, giving me your winning trade or, Heaven forbid, one of your losing trades.

A reader asks: How do you handle fear? I seem to have plenty of it.

Let’s get one thing straight. Fear, for the majority of traders, is a very real thing. You have it, I have it. Others have it as well. What is it that traders fear? The top three, in order, are:

1.Fear of missing a trade.
2.Fear of losing money.
3.Fear of being wrong and losing face.

In order to become a professional trader, you must learn to deal with fear. The first step is to acknowledge that you have it, which is what you have done. Once you admit to fear, you can begin to deal with it.

When you notice the impulse to trade based on strong fear, it is usually best to literally step out of the trap by stepping out of the situation.

You need to get up, walk away from the computer. Turn off the television if it’s tuned to a financial station, take a walk, get something to eat, go outside and cut the grass, water the lawn, or do anything that will move you out of the fear/panic mode.

Don’t return to your trading desk until you have managed to achieve some emotional control over your fear/panic reaction. If you can’t get a grip on your fear, then don’t come back that day.

Most likely you will find that even if you keep thinking about the miserable market conditions while you water the lawn, simply getting away from the keyboard and monitor is enough to make a difference. It removes the demand to take action, and gives you the mental space to gain perspective and let go of your impulsive, fear-based reaction.

Yes! Seasonal transitions create workable Spread strategies. I’ll let my friend Jerry Toepke, an expert in seasonal fundamentals, answer. Jerry! You have the floor:

“Change gives birth to risk - but also creates opportunity. Seasonal transitions create workable spread strategies because markets have to struggle to maintain equilibrium between supply and demand as conditions undergo dynamic change through time.

“The transition from one crop year to the next in any market can sometimes be difficult; but the coexistence of prospects for huge new supply, damage to the crop, and heavy consumption can create extreme tension. Final old-crop inventories can be neither too much nor too little. If old-crop inventories are too great, they can burden new-crop prices throughout the following year. If old-crop inventories are too small, they can aggravate any crop problem amidst the season of heavy consumption. Until harvested, the new crop faces the potential for weather, disease, insect, or damage from a variety of natural or man-made disasters. Therefore, the contract representing new-crop production must balance prospects for both new supply and any sort of disaster.

“Prices tend to decline as supply peaks. But the market has often changed thereafter. When prices are low, stocks begin to decline. By about a month before harvest, the market may begin to build in a premium to offset the risk of something going wrong.

“But does the market prefer old-crop security - or new-crop prospects? Though not often dramatically so, it has tended to adhere to the philosophy of ‘a bird in the hand is worth two in the bush.’

“Next, let’s look at a seasonal spread trade that has nothing to do with crops or harvest. A good example would be crude oil. Demand rests primarily in two areas of seasonal product consumption - gasoline in summer, and heating oil in winter. In both cases, inventory accumulation precedes peak consumption. In spring, for example, steadily improving driving conditions increases daily consumption even as the industry accumulates supplies for the opening of the summer vacationing and driving season. This combination accelerates demand for gasoline - and therefore for crude oil to refine. Accelerating demand tends to drive prices - and bull spreads.

“Its corresponding dynamic tends to begin in August, during which refiners often shut down temporarily to perform maintenance and to retool facilities. When they return, the industry begins the process of accumulating inventories of heating oil. As refineries gear up to produce at capacity, demand for crude oil accelerates into October - often driving bull spreads.”

The winning currency trader must be cold, calculating, and logical. It is absolutely necessary to control your emotions, rather than let them interfere with your trading decisions. While it is true that fear and greed are major factors in market behavior, there are other emotions, such as anger and disappointment, that influence our trading decisions.

Because emotions can interfere with discipline and sound decision-making, it is necessary for traders to take a methodical approach to their trading. By trading a method it is possible to gain an awareness of market behavior, and in that way learn to master and control our emotions.

Many traders become fearful when they perceive that a loss is imminent. When a loss is clearly going to happen, it is useful to close out a trade as soon as possible. But many times, traders tend to follow the crowd. They see other traders selling or buying, and so they sell or buy rather than following a proven set of rules.  

The winning currency trader learns to take advantage of fear. He or she learns to stick with what they know works in the long run.

One reason to use a proven method is to somewhat mechanize both fear and greed. It is reasonable to be fearful when your money is on the line. That’s why winning traders protect themselves by trading with a detailed trading plan and a known scheme of risk management. Methodical trading allows you to minimize risk, and trade more effortlessly and with less fear, because you have the courage of conviction in knowing that statistically you will win overall.

Many traders have no idea of how to create a trading plan.  That is why Trading Educators offers you a chance to earn while you learn.  By trading a proven method, you see how a plan is created and have the underpinning of successful history to back you up. At some point you will feel sufficiently confident to create your own plan. Let’s face it, a method is nothing more than a trading plan with statistics to back up and support its validity.

At Trading Educators we know that emotions are a natural part of trading. As much as traders painstakingly plan their trades, the market doesn’t always meet their expectations. The same is true of a trading method. That is why we always provide full details of every method, so that traders, at their discretion, are able to adapt and make changes to a method should they choose to do so. As with any plan or method, it is more than likely that the market will sometimes fail to meet our expectations rather than behave in accordance with our plans. There is no holy grail of trading.  If you accept this fact and take precautions to work around it, you’ll be able to minimize the influence of emotions. You’ll trade more effortlessly, creatively, and profitably.

Is there any meaning in trading? Does it serve a purpose? Does it produce anything of value to anyone?

That’s a good question, and one that I have frequently thought about over the years.

When I first began trading, a fair number of futures contracts actually ended up in a delivery — certainly more than we see today. Today only 3% of contracts result in delivery.

The economic and social justification for the futures markets is to provide a venue in which producers and users can hedge against excessive fluctuations in price. Price stability within the economy is seen as a desirable thing, and so it is. In effect, the hedger is seeking price insurance, and the speculator provides the insurance policy. With hedging as its justification, speculation in futures serves as a way of providing liquidity, efficiency, and price discovery. The speculator serves as the person who is willing to take the risk the hedger wants to avoid. Without that justification, trading futures is nothing more than outright speculation.

However, it is difficult to see how trading a 1-, 3-, or 5-minute chart meets the criteria for providing liquidity and price discovery for the hedger. Does a producer or consumer need to hedge for only 1 minute? It is hard to argue on the basis of short-term intraday trading, that anyone is actually providing a social or economic benefit of any kind.

Whereas with longer-term trading it is easy to see the social and economic benefits provided by the speculator, it is virtually impossible to see that such benefits are derived from short-term trading. That renders day trading as nothing more than speculating. To that extent, the futures markets may have become giant gambling casinos.

That raises a question: What is the difference between the gambler and the speculator? True speculation in futures is based on taking advantage of the realities of the market. Gambling is an attempt at trying one’s luck.

Since trading is a business, the business-like speculator in futures is willing to accept the risk of price fluctuation in return for the greater leverage that comes with that risk in the hopes of earning substantial profits. The business-like speculator in futures makes his trading decisions based on knowledge gathered from information about the behavior of the underlying: seasonality, historical and current trends, chart analysis, fundamentals, the market dynamics, and knowledge of those who trade it. But what about the
gambler? How does he make his decisions?

The gambler makes his trading decisions on gut feelings, hopes, dreams of getting rich quick, tips from the broker, “inside information” from friends, opinions uttered in the financial news media, and from the improper understanding and use of indicators, oscillators, moving averages, and mechanical trading systems. In general, he is looking for a way to shortcut having to truly learn what is going on. He or she is in a hurry to make money. Unfortunately, most people who attempt to trade fall into this category. Many wannabe traders are gambling, and they don’t even realize it. Anyone who attempts to trade without essential knowledge of what the markets are all about and how they truly function, is gambling.

There is one more aspect to this subject. It has to do with morality. I am often asked if trading goes against the teachings of the Bible. Is it a sin to trade? Is it a sin to speculate in the markets? I have been asked this question numerous times even by church pastors. My friend Kent Calhoun said it this way: “You did not pay to be born. Life is a gift that was freely given to you. The ways in which you repay God for your life is by using your natural talents to the best of your ability and constantly creating positive change in your life and the lives of others. This quest fulfills the meaning of life, to make the world a better place because you were here. What are your talents and abilities? What is the most important goal in your life? How do you exercise your talent on a regular basis to achieve that goal? How are you creating positive changes in your life and the lives of others?

In my own life, I use my trading to support my prison ministry, mission work, and my local church. I believe that produces both economic and social benefits to the world in which I live.  

Hey Joe! No matter how hard I try, I still find myself hesitating before a trade.  Any comments about that?

There are any number of reasons why a trader hesitates before a trade.  The main one is lack of planning.  Without a plan, there is no degree of confidence a trade will be successful, it’s all wishful thinking. Unless they are outright gamblers, traders usually have a strong need to protect their assets and avoid risk. This is especially true for beginning traders. It can take a long time to build up sufficient capital for serious trading. By that I mean sufficient capital to be able to trade for a living. It is quite understandable to fear losing all or part of your initial capital. Beginners tend to seek absolute certainty before taking a risk, and gaining true confidence in you ability to trade successfully can take time. Unscrupulous marketers of mechanical trading systems and methods take advantage of the beginners fears and lack of confidence by advertising “sure-fire” “magic” ways to trade, instead of revealing the truth about the difficulties in becoming a consistently successful trader. 

When it comes to short term trading, there isn’t very much time for long deliberations. Market conditions are in continuous flux. Decisions need to be made relatively quickly, and if one waits too long to execute a trade, he or she may miss a significant opportunity. The reasons for hesitation are everywhere, and traders must be aware of them, and create a plan to prevent them.  Let’s look at a few of the things that cause traders to hesitate:

1) The complex charting software available these days tends to increase hesitation.  Traders think that the more confirmation they can get from indicators, the more certain they can be that a trade will be successful.  However, all indicators lag the market. The notion that an indicator can somehow predict what will happen once a trade is entered is nothing more than wishful thinking. An indicator may give some degree of confidence about entering a trade, but the indicator cannot trade the trade, only the trader can do that. Once a trade is entered, it becomes entirely a process of management. It’s tempting to look at as many indicators and signals as possible. Doing so, however, can be very time consuming. That’s why seasoned traders advise looking at only a few if any key indicators.

2) Hesitation is often related to a lack of confidence in the trader’s trading strategy or trading ability. There are numerous reasons for such lack of confidence. Some of the reasons are shallow and mostly on the surface, like being distracted by watching financial TV while trading.  Other reasons are more deep-seated, and actually reflect psychological problems dating all the way back to early childhood.  A trader may not believe that his or her trading plan is adequately developed.  Nevertheless, they are determined to trade, so they muster up their courage and finally jump into a trade almost guaranteeing that the outcome will be a matter of pure chance.  Some traders may question their trading plan because they know that they did not spend enough time preparing it. Sometimes hesitation is intuitive, warning the trader to avoid the trade. All too often, traders are not tuned into their own intuitive feelings.  In the case of intuition, hesitation can act as a motivator. If the trader feels the hesitation is because of lack of adequate preparation, then that trader must learn to spend more time preparing for trades. By studying the markets a trader can come to see new higher probability setups, thereby reducing doubt and indecision, and in turn stop the hesitation because of more adequate preparation.

3) Hesitation sometimes reflects a deep desire to be right and a fear of being wrong. It has been our experience that many of the people who are attracted to trading fit into this category.  Great care must be taken by physicians, engineers, scientific types, and mathematicians, who seem to be the most prone to this type of hesitation. They are often perfectionists afraid to face their inadequacies. By putting off a decision, they don’t have to face their limitations, and can pretend they are better traders than they really are. If I had the time and space, I could give you dozens of examples of this kind of hesitation.  The perfectionist’s reality states that everything must be in order and follow rules.  They think strictly inside the box.  They want everything to be perfect, so they continually second guess and doubt themselves and what they are doing. They believe that they cannot cope with being wrong. This occurs in trading decisions as well as other life decisions. Extreme perfectionists often think that once they make a bad trade, it will be the start of a downward spiral and a complete blowout of their trading account.

4) Hesitation very often relates to low self-esteem or other deep-rooted psychological issues. We see these more times than we would like to.  Traders with low self-esteem usually lack confidence, not only in trading, but other areas of life. Beneath it all, they doubt their ability to trade, and hesitate making a trade until they the guilt of not doing so overcomes their fear.  At that point in time, they enter a trade out of pure compulsion driven by guilt.  This exposes them to a trade with no real plan to support it.  They become victims of pure chance. 

We also find that traders who hesitate may have a conflict regarding their success. They can actually fear success.  They have been told by parents or others that they were no good, that they would never amount to anything, that they were “bad.” These people strive for success at one level of their consciousness, but at a deeper level, they secretly believe they cannot attain it, or do not deserve it.

Identifying, directly facing, and eventually eliminating a problem of hesitation is the only way to truly deal with it. Chronic hesitation will eventually destroy the confidence a trader needs for success. If the problem is not dealt with and the traders continues to hesitate, miss important market moves, and see his or her equity begin to dwindle, that trader runs the risk of becoming a phantom trader, a pretender, becoming convinced that the imaginary trades being made are real. If you are prone to hesitation, it’s vital that you deal with this problem early in your trading endeavors. Identify the reasons for it, confront the problem, and make changes as soon as possible. These are changes you have to make within yourself.  If you will truly engage in self-examination with the object of eliminating hesitation, you can trade become consistent and successful in trading profitably.

Q: “Hey Joe! How do I get my ego out of my trading? I want to be market-centered, but I find myself consistently being self-centered.”

One thing I know for sure, your self concept has to be separate from the trading. You began as an individual long before you ever thought of trading. And you exist as an individual beyond the time you spend trading.

When personal self-worth gets tangled up with your trading, it not only damages your concept of your personal worth, it sabotages your trading.

You must not allow your trading errors to ruin your feelings of self-worth. You must not internalize the mistakes you make. You have to avoid feelings of guilt, persecution, and despair.

You must learn to divorce your ego from your trading.

In my first manuscript on trading, Trading by the Book, I said that trading is a business in which there is no competition. I meant that in the sense that the only competition in trading is yourself. The market is impersonal. It doesn’t know you or care about you.

Your job as a trader is not to will the market to go where you want it to go, but rather to discover which way the market is going and join it – get in step with it.

That means total surrender of your will to that of the market. Surrender to it and go with it. If you set your will against the market, you will invariably be smashed. Forget being right! Concentrate on the fact that the market is always right.

Uncertainty is a part of trading. But we cannot allow uncertainty to become part of the image of ourselves. Consider, are you making any of the following ego-centric mistakes?

· Trading without a predetermined exit point.
· Not pulling the trigger on a trade, or hesitating before pulling the trigger.
· Trading too large a size, or trading too often.
· Marrying a trade, or marrying a market.
· Adding to a losing trade.
· Not taking profits when they are there on the table.

Hey Joe! I hate to lose. It seems to me that winning is everything - do you agree?

Man do you have a bad case of “have-to-win-at-all-costs.”  Every business has losses.  Even doctors, but they get to bury their mistakes.  Retail stores lose to shop-lifting and even worse employee waste and pilferage.  Of course, having a goal of winning is a virtue.  It is that of setting a clearly defined goal, and working to achieve it. But an over-emphasis on winning at all costs can be detrimental, especially when it comes to the world of trading.

When I trade, I have two goals. Actually, they are two sides of the same coin.  1. I want to take some profit as soon as I possibly can. 2. I want to get a free trade, so once I have profit, I move my position to breakeven.

Winning is surely important, but it’s vital that you look at winning from the proper perspective. Early success, can destroy a trader—we often see this—early wins and then giving it back to the market soon after. This seems to occur when traders are overconfident. As a result of a little skill and some luck, they win on a bunch of trades, but in the end, their wins are only a fluke. And eventually, they “blow out.” When it comes to short-term early wins, it’s possible to win with only a little knowledge and skill. But watch out! Winning too early and too easily, tends to put take you off-guard.  You become overconfident.  You erroneously think you have the necessary skills to trade consistently and so you start focusing on maintaining a winning track record.  I wish I had the time and space to tell you of how many times I have seen this happen to traders.

But in the long run, a craving to win all the time can lead to failure. For one thing, the more you focus on winning, the more you are likely to freeze-up under the pressure. You have set yourself an unrealistic goal. 

Winning isn’t nearly as important as consistency and sticking with your plan. So when you’re trading, remember you’re “winning” even when you are losing as long as you are disciplined and following your trading plan, you may not win on any given trade, but over the course of many trades, you’ll be a winner.